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Typical Aspects of Merger of Multiple Companies into One Company

By observing the future prospects of a company one has to develop a certain structure so that a better combination of the companies operation, business agenda and marketing may equivalently be distributed with equitable benefits for its progress.

In a competitive market when a proportion of consumer demands is targeted to be captured in a proficient manner to generate exponential growth in revenue so that the business can defy the geographical and legal limitations. To keep these basic fundamentals and formulations intact, the mind of an entrepreneur takes the challenge to overcome and to gain a significant step to reach the top of the economic ladder.

These entrepreneurial skills come into test when different companies form a conglomerate or form such an organization to capture a greater pie in the market and build or organize in such a manner to reach an exceptional solvent position.

In this article the typical scenarios or kinds of mergers that happens which may revolve around to beat the market competitiveness and in having such market distribution to acquire a large aspect of a consumer demand which will suit the corporations or the conglomerate to become an organization giant having higher prospects in the market economy.

Why there is the intent of merging entities?

The intent is purely business if applying a basic point of view. But a broad view can be applied where two or more business entities develop an understanding to co-partnering together to reap business advantages.

The primary intent of a corporate or an entrepreneur is to get a larger pie of income from the market demand and supply, which is a phenomenon of a cyclical order of the market economy. Due to this phenomenon, an entrepreneur diversifies his business, through entering into other earning aspects in the market. The market runs in cyclical order of booms and bust, where the revenue of a company rise and fall due to market sentiment and technicalities.

In order to beat such a cyclical order, the entrepreneur invests or acquires other smaller companies or ventures by merging to its organization or by investing through a capital infusion.

The entrepreneur will gain a new stepping stone in expanding its reach into the market and to tackle the space of different consumer demands and to earn from it. The whole process of diversification then comes, into play. The company gets into the prospects of earning from different ventures under its control this may gain a larger business paradigm for the entity to survive in the market easily. Developing such prospects will create an image of being publicly appreciated the company and will attract foreign investors.

So mergers not only help the entrepreneur but also develop a new market leader upon which the market economy expands with itself, thus, formulating an ardent innovation of business prospects through diving into mergers.

Through mergers it may also introduce better business advantage to an entity; it may also show the need for better funding from a larger or a successful corporation which may lead to opening many doors for the business to establishing its venture into higher ends. It may also help in reviving sinking entities that have lost all hopes of liquidity to function efficiently through its marketing operations. Thus, pushing the limits of the marketing economy in a well-collaborated structure.


Also Read: Methods By Which Security Is Created Against A Debt

 

What are the types of mergers which frequently happen?

At a corporate juncture typically has three types of incorporation which are associated in expanding business entities that come into a consensus for their economic agenda. Mergers like amalgamation and demerger are methods by which companies grow and expand into larger corporations and through demerger wherein, new companies are formed with the intention to better manage the functioning of an outgoing company.

In contrast to the mergers or amalgamation, a joint venture is also another common method of unification of business entities.

In an amalgamation, an entity takes over the existence of another entity. This form of consideration usually involves buying the whole company through a Business Transfer Agreement (BTA) or by a Swap Sale agreement where the whole entity is transferred on a going concern basis.

A company can also be taken over by purchasing majority shareholding of the target company by executing a Share Purchase Agreement or Share Holding Agreement and the selling entity still have its existence but the shareholders will lose its control over the management. In other instances of acquisitions, where the target company has many subsidiaries and the acquirer company gets control over the target company then, it will automatically get control over the management of the seller’s subsidiaries. 


Also Read: Understanding the Difference Between Slump Sale and Asset Sale.

 

The following are the kinds of mergers that take place:

  • Amalgamation

An amalgamation happens when two or more companies agree in merging and incorporating one single entity. The companies which combine to form a single entity usually go through a transfer of shares by the selling entity to the buying entity. The selling entity will lose its existence and will be fully submerged into the buying entity. This form of merging is the most common in practice.

However, a share purchase agreement and a shareholding agreement formulated between the merging entities. The company thus becomes one single unit of corporate structure and functions throughout this way accordingly.

  • Demerger

A demerger is the opposite of a merger but is also practised in a wide manner. In a demerger, a new entity is extracted out from one or two units of a company as part of a corporate structuring program within the company. The intent behind such structuring through demerger is that, ease of managing the company operations through a different undertaking.

In a demerger, a new entity is incorporated wherein it manages the function of certain parts of operations of the organization. Usually, a subsidiary is incorporated to handle a part of an operation of the company or this subsidiary is owned wholly by its parent holding company. The management of both companies might be the same in the case of a subsidiary company.

  • Asset Sale/ Business Transfer Agreements

An asset sale is an individual transfer of an asset to a company. It can be termed as cherry-picking the individual asset of a company. Assets like land, heavy machinery or factory can be transferred from one company to another. Though an asset sell is also used by the company to ease off unnecessary components out of their balance sheet or which is called cleaning up the balance sheet. The asset sale is done through a business transfer agreement (BTA) where the parties agree on the way in which the individual assets are to be transferred and the way consideration is to be paid to the selling party. Another form of an asset sale that is widely used is the slump sale. In a Slump sale, the whole undertaking is transferred to the buying entity, it is a transfer in a going concern basis, where the whole entity is transferred to the buyer.

  • Joint Venture

A joint venture is another form of a merging entity. In a Joint Venture (JV) two or more partners or companies come together contributing to different parts of the operation of the JV Company. Under this the functioning of the JV entity, the partner companies shall distribute the functions of the company through contributing into the different operational aspect of the JV entity, it is done by way of transfer of technology, manufacturing of goods, distribution of products and other operations of the company as agreed by the parties in the JV entity. A recent example of a JV entity is the Vodafone-Idea merger, which came together to function as a single joint venture entity to tackle the market competition in the Telecommunication industry.


Also Read: What are the Laws & Regulations Applicable in an M&A Transaction

Other new emerging forms of mergers

Though mergers not only mean to buy or sell a single entity or asset, it now has developed into more subtle forms of acquisitions that have shown a different kind of dynamics and growth. The new form which has developed is structured in a form of acquisition of human resources or by developing a product that may be endorsed by two separate entities.

·         Acquihire

Acquihire is one of the methods other than mergers and acquisitions, wherein, the human resource of an organization is acquired by another company. The sole purpose of such acquisition is to acquire a talent for a particular purpose or project of the company. The selling company transfers a team of talented employees to the buying companies. Acquihire is practised widely among the IT startup companies which nowadays acquire the whole team of employees of a different entity into a company.

·         Bancassurance

Similarly, another form merger in the financial sector is bancassurance, which is generally a deal between Insurance Company and Banking Company. The companies have a common product, wherein an insurance scheme is sold by Banking Company. This type of sale is then termed as bancassurance, which is a financial sector product. The product is sold by the Banking Company but the product is that of an Insurance Company, the customer having a bank account will have the benefit of getting better deals out such bancassurance agreements. This form of agreement is a product-based merger wherein companies of different sectors coming together to have an individual product.

So both Acquihire and Bancassurance are both a form of the innovative structure of coming together of companies that have a huge advantage. In Acquihire it is a form of acquisition of a human resource or an acquisition of a team of specialists because of their talent or expertise in a certain field of knowledge. Bancassurance becomes a coming together of different entities for selling a product.

Conclusion

Thus, a merger has shown the expansion of the companies into different market space, that is, through the growth of a company by submerging different companies for its own management and operation the company and also by defecting a part of its unit under a different subsidiary so that better management of a company be possible and by coming together of companies where it can become a better or larger market force in the economy. These aspects of mergers develop the status of emerging markets or the economic structure of the country.


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  1. Pingback: Understanding The Difference In Asset Sale and Slump Sale – Legal Shashtra

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